India Is Importing 500,000 Tonnes Of Wheat From Australia, Highest In A Decade, On Shortage Worries

24/06/2015 10:37 AM IST
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Updated
15/07/2016 8:25 AM IST

Reuters

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MONEY SHARMA via Getty Images

Indian farmers work in a field as they seperate husk from harvested wheat grains by using a harvestor machine in Faridabad, a suburb of New Delhi on April 30, 2015. AFP PHOTO/MONEY SHARMA. (Photo credit should read MONEY SHARMA/AFP/Getty Images)

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Indian flour millers are concerned that there is not enough wheat in the market to feed the insatiable demand for pizzas and pastas in the country. That has led them to place import orders of 500,000 tonnes — or one and a half times the weight of the Empire State building in New York — of premium Australian wheat since March.

This is the biggest such purchase in more than a decade, despite excess stocks. The millers' concern stems from unseasonal rains in February and March, which might hit wheat output at a time when sales of flour-based products such as pizzas is booming. Millers in India's southern ports were the first to place the orders.

Pizzas and pastas require high-protein varieties of wheat.

The millers got attractive prices for their orders, which has then prompted companies such as Cargill, Louis Dreyfus and Glencore to follow suit, said three sources directly involved in the deals.

The traders and millers could import a further 500,000 tonnes from France and Russia, where harvests are around the corner. The deals could push up benchmark prices that have already jumped on recent concerns about crop quality in the United States.

"There are strong chances French and Russian wheat will find their way to India because of attractive prices ... and if the euro goes down, I expect more French wheat coming to India," one source said.

Almost half of the quantity contracted so far -- bought at $255 to $275 a tonne -- has reached India and the rest is scheduled for July delivery, said the sources, who declined to be identified because they are not allowed to discuss trade-sensitive issues publicly.

Although rains and hailstorms wilted the Indian wheat crop, the world's second-biggest producer and consumer of the grain has large stockpiles accumulated after eight straight years of bumper harvests.

MONSOON CONCERNS

But the government is likely to draw heavily from its warehouses this year if monsoon rains, critical for farm irrigation, turn out to be deficient, thereby fueling food inflation. India's weather office has cut this year's monsoon forecast to 88 percent of a long-term average, raising fears of the first drought in six years.

Industry and government officials estimate this year's wheat output at about 90 million tonnes, nearly 5 percent lower than the 2014 harvest but still exceeding domestic demand of about 72 million tonnes.

Since wheat is largely grown in India's central and northern plains, flour millers from southern states, hemmed in by the Indian Ocean, sometimes find it attractive to import high-protein grades from Australia.

But this year's unusually large volumes have surprised some.

"Other than large amounts of wheat that we're importing, we see two other significant changes," said one of the sources. "Perhaps for the first time, some imports are taking place in vessels and perhaps for the first time millers will end up buying French and Russian wheat as well."

At about $185 to $190 a tonne on a free-on-board basis, French and Russian wheat is attractive for India, another source said. High-protein wheat in India costs more than $300 a tonne and imports could ebb if prices fall to about $283, the sources said.

Russian wheat, however, could fall short of India's quality requirements despite a higher protein content than French wheat, said Tajinder Narang, a New Delhi-based trade analyst.